RICB and NCSI CEOs talk about how the freeze on loan will impact their financial institutions

After the recent directive by the RMA to freeze loans for the three financial institutions (namely BDBL, NCSIBL and RICBL), these institutions are temporarily suspending some of their plans.

“As a result of the directive, the RICB is no longer able to give out new loans and it will be difficult to estimate the demand for the loans, especially after the COVID restrictions have been fully lifted and activities are back to normal,” said Karma, the CEO of RICBL.

Karma also said,”Since the freeze on loans have been only recently implemented (just about two weeks ago), it will be difficult to forecast the magnitude of impact it will have on the RICB. Not only will it be very difficult to access the potential of loan after things are finally back to normal, we cannot estimate how much revenue we will be giving up on as a result of the loan freeze.”

National Cottage and Small Industries Bank Limited is another bank that was directed to temporarily cease sanctioning all kinds of loans by the RMA on 10th May 2022. NCSIDBL is a government undertaking non-deposit Bank established as a dedicated State-Owned Enterprise (SOE) to promote the growth of Cottage and Small Industries (CSI) in the country. The Bank aims to narrow the gap in availing financial support for start-ups and entrepreneurs, which otherwise face difficulty in availing loans from other commercial Banks instead of collateral. The paid-up capital since BOIC (RF1) until the establishment of NCSIDBL (i.e. from 2014-2019) remains Nu 1,257.598 million. With the foundation of NCSIDBL on 21st February 2020, its paid-up capital stood at Nu 870.702 million as of 10th February 2021.

“There will be few changes in our plans. We normally forecast how much income we will generate from giving away loans to customers, and make some plans for the bank accordingly. Since there is no loans to sanction, it will have some significant impact on the operations of the bank,”said Kinzang, the Chief Executive Officer of the NCSI bank.

Kinzang also said,”Since it is the time of opening up right now, giving away loan could not only be crucial in helping the NCSI bank itself in generating revenue but also be mutually beneficial in reviving the economy of the country and generating employment. Secondly, it will help in boosting import substitution for the country. Cottage and small industries thrive in substituting import of foreign goods with the domestically/locally manufactured products. This will not only reduce the dependency on foreign imported goods but also boost the economy of the country. If we are not able to produce the goods that are currently in demand, we will have to eventually import them from other countries. ”

The NCSI CEO pointed out that freezing loan could affect the employment in Bhutan since customers who avail loans from the NCSI banks usually open up their own business and generate self employment for themselves or hire additional staffs to work with them, creating employment. Kinzang continued,” Our bank is normally rural oriented and if you look at the statistics, almost 70 percent of our customers are farmers and most of them youths. One of challenges faced is the customers not being able to pay the loans or the loans turning into NPLs. I can understand that situation has been quite bad due to the pandemic but some customers has been not taking this quite seriously, neither the ones availing the loans nor their guarantors while some of them has gone out to Australia instead of creating employment/businesses in their own country. There are still many who are interested in availing the loan just to go to work overseas like Australia.”

The NCSI CEO further added,” No collateral is required in availing loans from our bank, which is the charm of NCSI, that’s why a lot of people are trying to get loans from us. Instead a guarantor is required. If we look at our NPLs in 2021 (about 5.23 percentage) and compare it to other financial institutions I think it is fairly acceptable. Within about first three months of 2022, the NPLs has shown a rising trend which could have been why the RMA has been concerned about the NPLs of our bank.”